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Traders work after the opening bell at the New York Stock Exchange (NYSE) on August 15, 2019. Photo: Johannes Eisele/AFP via Getty Images

Fourth-quarter earnings have been far better than expected for S&P 500 companies, with the index overall reporting year-over-year earnings growth of 1.7% as of Friday.

Details: The expected earnings of the index have increased consistently. Analysts had predicted a year-over-year decline in earnings of -2.4% last week and a year-over-year decline in earnings of -9.3% at the end of the fourth quarter, according to FactSet senior earnings analyst John Butters.

  • If 1.7% is the actual growth rate for the fourth quarter, it will mark the first time the index has reported year-over-year growth in earnings since the fourth quarter of 2019.
  • So far, 81% of S&P companies have reported a positive EPS surprise for Q4, on pace for the second-highest percentage of positive reporting surprises since FactSet began tracking this metric in 2008.

Go deeper

Dion Rabouin, author of Markets
Feb 6, 2021 - Economy & Business

Priced for perfection

Photo illustration: Eniola Odetunde/Axios. Photo: Pool/Getty Images 

It would be hard for things to get much worse than 2020, but Wall Street fund managers and the general public may be pricing in too much optimism.

Why it matters: President Biden steps into a situation that is expected to improve significantly, with projections from economists and government offices for falling unemployment, rising GDP and a booming stock market setting him up for success.

  • But those prognostications aren't guaranteed, and high hopes dashed could lead to a strong blowback from a country already on edge and still highly polarized.

What's happening: The Congressional Budget Office expects U.S. growth to return to its pre-COVID level midway through this year and for the unemployment rate to reach 6% by year end — a far rosier picture than it painted just six months ago.

  • Similarly, economists are ramping up their predictions for growth thanks to cabin fever and a personal savings rate that shot up to record levels during the pandemic and remains at its highest since the 1980s.
  • Economists at Goldman Sachs are even predicting that U.S. GDP growth in the third quarter will reach 10%, a milestone without modern precedent, save for the 33% growth in Q3 2020 that followed the 35% contraction in Q2.

What they're saying: That's got asset managers expecting big returns from the stock market this year and businesses banking on rising sales and profits.

  • "As consumer confidence returns, so will spending, with 'revenge shopping' sweeping through sectors as pent-up demand is unleashed," analysts at consulting firm McKinsey wrote in a recent outlook.

Yes, but: Even before the recent run-up in equities prices, the stock market was "priced for perfection," John Lynch, CIO of Comerica Wealth Management tells Axios.

  • And if 2020 taught us anything, it's that we should prepare for the unexpected.

Look out: "The primary risks to the outlook continue to be medical," Ben Ayers, senior economist at Nationwide, tells Axios.

  • "We’re keeping an eye on the COVID variants and the effectiveness of vaccines against them. A resurgence of a mutated form of the virus would be detrimental to the global recovery."
  • "An early pullback in policy support from either the federal government or the Federal Reserve is another risk for growth — but policymakers have been resolute in their support for the recovery so far."

The bottom line: The key to a virtuous V-shaped recovery for the economy is the ability of policymakers to get as many people vaccinated as possible, says Joe Brusuelas, chief economist at RSM.

  • "My fundamental outlook since mid-2020 on this has not changed," he tells Axios. "V stands for vaccine. No vaccine, no recovery."

Australia opposes UN report warning Great Barrier Reef is "in danger"

A green sea turtle swimming among the corals at Lady Elliot island, off the coast of Queensland, Australia. Photo: Jonas Gratzer/LightRocket via Getty Images

The Great Barrier Reef should be included in a list of World Heritage Sites that are "in danger" from climate change, a United Nations committee said in a report Tuesday.

Yes, but: Australia's government said it will "strongly oppose" the recommendation by UNESCO's World Heritage Committee.

Sen. Kyrsten Sinema: Abolishing filibuster would weaken "democracy's guardrails"

Sen. Kyrsten Sinema at the U.S. Capitol building earlier this month. Photo: Samuel Corum/Getty Images

Sen. Kyrsten Sinema (D-Ariz.) defended her opposition to abolishing the 60-vote legislative filibuster in a Washington Post op-ed published Monday night, saying to do so would weaken "democracy's guardrails."

Why it matters: There have been growing calls from Democrats, particularly progressives, to overhaul the rules as the Senate prepares to vote Tuesday on Democrats' massive voting rights package. But Sinema writes in her op-ed that if this were to happen "we will lose much more than we gain."